Have you got an exit plan? The importance of estate planning

Australia is in the early stages of an unprecedented intergenerational wealth transfer, with Australians aged 65 and over expected to hand down $3.5 trillion over the next two decades.

This was the finding of a landmark 2021 Productivity Commission report on wealth transfers. Between 2002 and 2018, an eye-watering $1.5 trillion was handed down, with 90% ($107 billion) in the form of inheritances and the remainder in gifts to family while the donor was still alive. The average inheritance was $125,000, although the median was a much smaller $45,000.

The wealth of older Australians has been buoyed by strong growth in housing prices and three decades of compulsory superannuation, along with low drawdown rates on these assets to fund retirement. 

Given that today’s retirees have not had the full benefit of super during their working lives, the contribution of super to inheritances is likely to increase. The Productivity Commission forecast the average super death benefit would increase from $190,000 to $480,000 over 40 years.

With so much money at stake, planning is crucial, but planning how your assets will be distributed when you die is not always straightforward.

Challenges of estate planning

Unfortunately, many Australians report concerns about the smooth transfer of their assets to beneficiaries, a process known as estate planning. 

An October 2023 report by Fidelity found managing the complexities of estate planning worried 35% of Australians over the age of 26, followed by a lack of knowledge and understanding of estate planning laws and regulations (33%). A lack of awareness about the importance and benefits of estate planning was also a concern (20%).

Rules are one thing, but for many people the major challenge to successful estate planning is closer to home, managing difficult family dynamics and conflicting expectations. 

It’s important that your assets are distributed according to your wishes and your legacy doesn’t end up in a quagmire of family disputes.

Who’s getting what?

Despite the jokes and bumper stickers suggesting retirees are merrily skiing (spending their kids’ inheritance), most people want to provide for their surviving partner and leave an inheritance for their children and grandchildren.